WASHINGTON — The $8,000 federal tax credit for first-time home buyers is about to morph into a ready-cash down payment source, thanks to a new federal policy change.
Buyers eligible for the credit who apply for mortgages insured by the Federal Housing Administration may soon also be eligible for bridge loans or cash advances — up to $8,000 — that they can use for the down payment, closing costs or other loan expenses pending receipt of their tax credit check.
Housing and Urban Development Secretary Shaun Donovan announced the FHA change May 12 in a speech to the midyear convention of the National Association of Realtors. The idea, he said, is to "monetize” — turn into immediately spendable cash — a tax credit that often is not received until months after the settlement date.
As many as half of all would-be first-time buyers do not have enough cash on hand for a down payment and closing costs, according to building and real estate industry estimates. By advancing these consumers as much as $8,000 at closing, many more would be able to afford the purchase.
Officials at the National Association of Home Builders said the bridge loan feature could double the total number of home purchases stimulated by the 2009 tax credit program to more than 300,000.
Getting bridge loans
Under guidance drafted by the FHA, all lenders approved to do business with the agency will be authorized to provide bridge loans at closing — secured solely by the tax credit the borrower anticipates receiving from the federal government.
State and local government agencies and nonprofit organizations approved by FHA will be allowed to offer either bridge loans or second mortgages secured by the house.
Though the $8,000 tax credit carries the name "first-time home buyer,” eligibility extends to anyone who hasn’t owned a principal residence during the past three years. The credit amount from the government is the lesser of 10 percent of the purchase price of the dwelling or $8,000.
The credit only covers purchases closed by Nov. 30. Unless Congress extends the credit, it will disappear Dec. 1.
by the associated press
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Showing posts with label Credit. Show all posts
Showing posts with label Credit. Show all posts
Saturday, May 30, 2009
Sunday, May 24, 2009
Credit card law aids consumers
CHICAGO — The new credit card law is receiving widespread kudos as a victory for cardholders over the lenders that impose "gotcha” fees and penalties with scant justification and little notice.
Indeed, an industry that has been virtually unregulated will now be reined in many ways, to customers’ benefit. Interest rates no longer will be allowed to be raised retroactively if you pay your bills. Terms will be clearer, over-the-limit fees curtailed and rates will be fairer.
Still, there are pitfalls to the legislation passed by both houses of Congress and signed into law by President Obama on Friday, and some are likely to hurt consumers.
"People can start to feel a lot more comfortable about the rules of the game,” said Adam Levin, chairman and founder of Credit.com, a San Francisco-based company that provides education and information about credit products. "But there will be some fallout, and it might be a short-term negative.”
Here is a closer look at some unintended consequences of the new law that are likely to occur:
Higher rates
Issuers are considered certain to bump up annual percentage rates soon to compensate for the fact they can’t increase them on new customers for one year after the regulations take effect in late February. Not only are introductory rates likely to rise, APRs on existing accounts may well go up, too — especially if you do anything to show that you are a greater credit risk.
If you are late on a payment, exceed your credit limit or even use too much of your limit, you could see an immediate increase in your rate, said Bill Hardekopf, CEO of LowCards.com, which tracks credit card offers. He recommends consumers pay their bills early, send in more than the minimum and not use more than a third of their credit limit.
Even that may not save them. The law does not put a cap on the interest rate that can be charged. Issuers still will have the ability to raise rates at any time for any reason, although that won’t apply to existing balances unless a customer is 60 days overdue with a payment.
Annual fees
The free ride is likely to end for many who use their credit cards as a convenience and pay off their balances in full every month. Squeezed by the economy and further by this law, banks will now target people who have avoided paying an interest charge or an annual fee — until now.
Unlike in many other countries where free cards are rare, only about 20 percent of U.S. credit cards currently carry annual fees, according to LowCards.com. But that figure is expected to climb as more follow the lead of American Express with its green, gold and platinum cards. Expect to pay at least $50 to $100 a year.
Lost grace periods
Trying to make up for lost revenue, banks are considering charging interest from the date of a purchase instead of allowing a grace period, now typically 20 to 25 days. The best that cardholders may be able to hope for is an option from their issuer, according to credit card expert Ben Woolsey: Either pay an annual fee or lose your grace period.
"They’ve got to change the pricing structure of these cards,” said Woolsey, director of marketing and consumer research for CreditCards.com, a privately held company that offers consumers comparisons on credit cards. "They can’t let such a huge portion of their portfolio not contribute any profit any more.”
Other fees and penalties
The new regulations put no restrictions on fees for balance transfer, cash advance or late payment. All are likely to rise, as foreshadowed by Bank of America’s and Discover’s plans to boost their balance transfer fees to 4 from 3 percent June 1.
Being 60 days late could be especially costly for consumers. Currently card companies impose penalty rates averaging about 28 percent, or double the average standard rate.
But that could rise to 30 or 35 percent as the companies scramble to make money where they can, said Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group.
Tighter credit
Consumers with lower credit scores will find it harder to persuade strapped card issuers to give them credit because of the new regulations. Even those with respectable credit histories may have difficulty getting approved for new cards or find their credit limits lower than in the past. That means more people may resort to payday lenders and pawn shops, said Greg McBride, senior analyst with Bankrate.com.
Cutback in rewards programs
Card companies have long used reward programs to retain customers’ loyalty, giving them cash-back rewards, frequent-flier miles and other perks.
Now they won’t be able to subsidize those programs when they are not making as much from finance charges and penalty fees under the new regulations.
Industry officials’ threats during the lobbying process to cut them back sharply could prove to have been a bluff, but analysts and consumer experts still expect them to be trimmed to some extent.
Smaller card issuers may vanish
Six mega-companies issue 80 percent of all credit cards: American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., JPMorgan Chase & Co. and Discover Financial Services. They are unlikely to pull back from the business because of the new law. But some of the smaller banks and issuers that make up the other 20 percent are likely to stop issuing cards.
That’s because of both the administrative costs of implementing the required changes and the inability to raise rates in some cases, said Mike Brauneis, managing director for Protiviti Inc., a business consulting and auditing firm.
The bottom line of the whole reform effort is that despite the big strides forward taken by the new law, it doesn’t abrogate consumers’ responsibility to handle credit card debt cautiously and read the fine print of their monthly statements.
"Certainly it’s not a silver bullet,” Brauneis said, "to keep consumers from getting in over their heads with credit card debt.”
by the associated press
Indeed, an industry that has been virtually unregulated will now be reined in many ways, to customers’ benefit. Interest rates no longer will be allowed to be raised retroactively if you pay your bills. Terms will be clearer, over-the-limit fees curtailed and rates will be fairer.
Still, there are pitfalls to the legislation passed by both houses of Congress and signed into law by President Obama on Friday, and some are likely to hurt consumers.
"People can start to feel a lot more comfortable about the rules of the game,” said Adam Levin, chairman and founder of Credit.com, a San Francisco-based company that provides education and information about credit products. "But there will be some fallout, and it might be a short-term negative.”
Here is a closer look at some unintended consequences of the new law that are likely to occur:
Higher rates
Issuers are considered certain to bump up annual percentage rates soon to compensate for the fact they can’t increase them on new customers for one year after the regulations take effect in late February. Not only are introductory rates likely to rise, APRs on existing accounts may well go up, too — especially if you do anything to show that you are a greater credit risk.
If you are late on a payment, exceed your credit limit or even use too much of your limit, you could see an immediate increase in your rate, said Bill Hardekopf, CEO of LowCards.com, which tracks credit card offers. He recommends consumers pay their bills early, send in more than the minimum and not use more than a third of their credit limit.
Even that may not save them. The law does not put a cap on the interest rate that can be charged. Issuers still will have the ability to raise rates at any time for any reason, although that won’t apply to existing balances unless a customer is 60 days overdue with a payment.
Annual fees
The free ride is likely to end for many who use their credit cards as a convenience and pay off their balances in full every month. Squeezed by the economy and further by this law, banks will now target people who have avoided paying an interest charge or an annual fee — until now.
Unlike in many other countries where free cards are rare, only about 20 percent of U.S. credit cards currently carry annual fees, according to LowCards.com. But that figure is expected to climb as more follow the lead of American Express with its green, gold and platinum cards. Expect to pay at least $50 to $100 a year.
Lost grace periods
Trying to make up for lost revenue, banks are considering charging interest from the date of a purchase instead of allowing a grace period, now typically 20 to 25 days. The best that cardholders may be able to hope for is an option from their issuer, according to credit card expert Ben Woolsey: Either pay an annual fee or lose your grace period.
"They’ve got to change the pricing structure of these cards,” said Woolsey, director of marketing and consumer research for CreditCards.com, a privately held company that offers consumers comparisons on credit cards. "They can’t let such a huge portion of their portfolio not contribute any profit any more.”
Other fees and penalties
The new regulations put no restrictions on fees for balance transfer, cash advance or late payment. All are likely to rise, as foreshadowed by Bank of America’s and Discover’s plans to boost their balance transfer fees to 4 from 3 percent June 1.
Being 60 days late could be especially costly for consumers. Currently card companies impose penalty rates averaging about 28 percent, or double the average standard rate.
But that could rise to 30 or 35 percent as the companies scramble to make money where they can, said Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group.
Tighter credit
Consumers with lower credit scores will find it harder to persuade strapped card issuers to give them credit because of the new regulations. Even those with respectable credit histories may have difficulty getting approved for new cards or find their credit limits lower than in the past. That means more people may resort to payday lenders and pawn shops, said Greg McBride, senior analyst with Bankrate.com.
Cutback in rewards programs
Card companies have long used reward programs to retain customers’ loyalty, giving them cash-back rewards, frequent-flier miles and other perks.
Now they won’t be able to subsidize those programs when they are not making as much from finance charges and penalty fees under the new regulations.
Industry officials’ threats during the lobbying process to cut them back sharply could prove to have been a bluff, but analysts and consumer experts still expect them to be trimmed to some extent.
Smaller card issuers may vanish
Six mega-companies issue 80 percent of all credit cards: American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., JPMorgan Chase & Co. and Discover Financial Services. They are unlikely to pull back from the business because of the new law. But some of the smaller banks and issuers that make up the other 20 percent are likely to stop issuing cards.
That’s because of both the administrative costs of implementing the required changes and the inability to raise rates in some cases, said Mike Brauneis, managing director for Protiviti Inc., a business consulting and auditing firm.
The bottom line of the whole reform effort is that despite the big strides forward taken by the new law, it doesn’t abrogate consumers’ responsibility to handle credit card debt cautiously and read the fine print of their monthly statements.
"Certainly it’s not a silver bullet,” Brauneis said, "to keep consumers from getting in over their heads with credit card debt.”
by the associated press
Saturday, May 23, 2009
President Obama signs credit card fee law
WASHINGTON — President Barack Obama warned overeager shoppers and greedy credit card companies alike on Friday to act responsibly as he signed into law a bill designed to protect debt-ridden consumers from surprise charges.
The White House staged a signing ceremony in the Rose Garden, an indication of the legislation’s importance to Obama. Though the bill was opposed by many financial companies, it cleared Congress with broad support.
Obama made clear that he didn’t champion the changes with the intention of helping those who buy more than they can afford through "reckless spending or wishful thinking.”
"Some get in over their heads by not using their heads,” the president said. "I want to be clear: We do not excuse or condone folks who’ve acted irresponsibly.”
And yet, he said, for many of the millions of Americans, trying to get out of debt has been made difficult and bewildering by credit card companies.
Gun amendment
Nearly 80 percent of Americans have credit cards and half of those carry a balance, according to the White House. The Federal Reserve estimates the nation is some $2.5 trillion in debt, a figure that does not include home mortgages.
Obama said many people have gotten "trapped” because of the economy. But, he said, "part of it is the practices of the credit card companies.”
He criticized such policies that allowed for confusing fine print; the sudden appearance of unexplained fees on bills; unannounced shifts in payment deadlines, interest charges or rate increases even when payments aren’t late; and payments directed to balances with the lowest interest rates rather than the highest.
One part of the bill Obama did not celebrate at the signing, a gun amendment. The measure by Sen. Tom Coburn, R-Muskogee, allows people to bring loaded guns into national parks and wildlife refuges.
The addition of the amendment to the bill — and Obama’s acceptance of it — was viewed as a bitter disappointment for gun-control advocates.
They watched gun-rights supporters gain a victory from a Democratic-controlled Congress and a Democratic president that they couldn’t achieve under a Republican Congress and president. Many blamed the National Rifle Association, which pushed hard for the gun law.
Democrats lawmakers and aides said they didn’t have enough time to send the bill to the House-Senate conference committee and still get the bill to Obama by the Memorial Day weekend as he requested.
by the associated press
The White House staged a signing ceremony in the Rose Garden, an indication of the legislation’s importance to Obama. Though the bill was opposed by many financial companies, it cleared Congress with broad support.
Obama made clear that he didn’t champion the changes with the intention of helping those who buy more than they can afford through "reckless spending or wishful thinking.”
"Some get in over their heads by not using their heads,” the president said. "I want to be clear: We do not excuse or condone folks who’ve acted irresponsibly.”
And yet, he said, for many of the millions of Americans, trying to get out of debt has been made difficult and bewildering by credit card companies.
Gun amendment
Nearly 80 percent of Americans have credit cards and half of those carry a balance, according to the White House. The Federal Reserve estimates the nation is some $2.5 trillion in debt, a figure that does not include home mortgages.
Obama said many people have gotten "trapped” because of the economy. But, he said, "part of it is the practices of the credit card companies.”
He criticized such policies that allowed for confusing fine print; the sudden appearance of unexplained fees on bills; unannounced shifts in payment deadlines, interest charges or rate increases even when payments aren’t late; and payments directed to balances with the lowest interest rates rather than the highest.
One part of the bill Obama did not celebrate at the signing, a gun amendment. The measure by Sen. Tom Coburn, R-Muskogee, allows people to bring loaded guns into national parks and wildlife refuges.
The addition of the amendment to the bill — and Obama’s acceptance of it — was viewed as a bitter disappointment for gun-control advocates.
They watched gun-rights supporters gain a victory from a Democratic-controlled Congress and a Democratic president that they couldn’t achieve under a Republican Congress and president. Many blamed the National Rifle Association, which pushed hard for the gun law.
Democrats lawmakers and aides said they didn’t have enough time to send the bill to the House-Senate conference committee and still get the bill to Obama by the Memorial Day weekend as he requested.
by the associated press
Thursday, May 21, 2009
New law requires lenders to limit sudden hikes, in Credit changes
WASHINGTON — Every American with a credit card will see sweeping changes in the market, with limits on sudden hikes in interest rates that drive consumers deeper into debt. Even cardholders who pay off their balance each month may face new annual fees or lose out on rewards programs.
Congress sent the legislation Wednesday to President Barack Obama, who plans to sign it on Friday. The bill will restrict when and how a card company can raise an individual’s interest rate, who can receive a card and how much time people are given to pay their bill.
About the rules
In general, the new rules — which go into effect in nine months — will protect debt-ridden consumers from many of the surprise charges common in the industry, such as over-the-limit fees and costs for paying a bill by phone.
"This cements a victory for every American consumer who has ever suffered at the hands of the credit card industry,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee.
But there will be those who lose from the new rules, too.
Banks, which oppose the legislation, will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled.
Credit could become harder to come by too.
Some of the changes, including a requirement that cardholders receive 45-days notice before their rates are raised, are already on track to take effect in July 2010 under new regulations by the Federal Reserve.
The legislation would put these changes into law and go further in restricting when and how banks charge people and who could get a card.
For example, the bill would require people under 21 to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.
Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. The lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.
How they voted
The House passed the reform bill by a 361-64 vote on Wednesday. The Senate voted 90-5 on Tuesday in favor of the measure. Consumer advocates say it’s up to the banks to decide what happens next.
Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group, said companies that are already offering transparent pricing won’t have to drastically change how they do business.
Two of the opposing senators — GOP Sen. John Thune and Democratic Sen. Tim Johnson — were from South Dakota, where thousands of jobs depend on the industry. Thune estimated up to 5,000 workers in the state would lose their jobs as a result.
by the associated press
Congress sent the legislation Wednesday to President Barack Obama, who plans to sign it on Friday. The bill will restrict when and how a card company can raise an individual’s interest rate, who can receive a card and how much time people are given to pay their bill.
About the rules
In general, the new rules — which go into effect in nine months — will protect debt-ridden consumers from many of the surprise charges common in the industry, such as over-the-limit fees and costs for paying a bill by phone.
"This cements a victory for every American consumer who has ever suffered at the hands of the credit card industry,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee.
But there will be those who lose from the new rules, too.
Banks, which oppose the legislation, will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled.
Credit could become harder to come by too.
Some of the changes, including a requirement that cardholders receive 45-days notice before their rates are raised, are already on track to take effect in July 2010 under new regulations by the Federal Reserve.
The legislation would put these changes into law and go further in restricting when and how banks charge people and who could get a card.
For example, the bill would require people under 21 to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.
Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. The lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.
How they voted
The House passed the reform bill by a 361-64 vote on Wednesday. The Senate voted 90-5 on Tuesday in favor of the measure. Consumer advocates say it’s up to the banks to decide what happens next.
Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group, said companies that are already offering transparent pricing won’t have to drastically change how they do business.
Two of the opposing senators — GOP Sen. John Thune and Democratic Sen. Tim Johnson — were from South Dakota, where thousands of jobs depend on the industry. Thune estimated up to 5,000 workers in the state would lose their jobs as a result.
by the associated press
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